Who Determines the Value of Bitcoin?
The value of bitcoin is determined by the market in which it trades in simple it’s like a commodity. In simple words, the market price is decided by how much demand it has over the market. The market price is set as same as gold, oil, etc. No person can determine the value of the coin it is only determined by market/exchange based on the supply and demand.
The Rule of the Market Rate for Any Item is
MORE DEMAND, LESS SUPPLY = RISE IN THE PRICE.
MORE SUPPLY, LESS DEMAND = FALL IN PRICE.
Factors that determine the rate of bitcoin:
1. Market demand and supply of bitcoin:
2. The cost for production of bitcoin through mining.
3. Number of competing currencies.
4. Rewards are given to the miners for verifying the transactions.
5. Its news developments.
Market Demand and Supply
The supply and demand of a product play always play an important role in deciding the value of the product in the market. This is the formula for any product. While concentrating on supply the products available in high quantity
will always have a low rate while products that are available in low quantity will have a higher rate as it creates a demand in the market to the customer. As the value of bitcoin is high and keeps rising as many investors have been interested in investing in it, as there are only limited coins available the rate of bitcoin keeps rising.
Cost for Production of Bitcoin Through Mining
The production of any product plays a major role in deciding its price. Just like any other product this rule applies to bitcoin too. It is determined that the marginal cost of bitcoin also depends on the production of bitcoin. The rate of electricity for mining bitcoin is more than or equal to the electricity bill of an entire company which can affect the cost of its production. The production cost of bitcoin is also affected by the difficulty level of the algorithm.
A Number of Competing Currencies
Bitcoin is the first invented cryptocurrency but although it’s the first to invent there are other several coins that have been introduced so far. But the dominance of bitcoin over the market has been reduced in times. In 2017 the market capitalization of bitcoin was over 80% of the cryptocurrency market but the share values have been fallen to less than 50% in 2021. This is because the investor gets awareness about the worth of other alternate coins.
Its News Developments
Bitcoin news developments have a higher impact on the price of the coin which means is a nascent ecosystem. The development can be different types th regulatory news that can affect the price of the coin. The governance policies of bitcoin which are set by developers also have an effect in determining the price of the bitcoin. Any modifications in protocol or disagreements with the developers can also affect the price of the bitcoin.
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